Video Forces AT&T’s Hand in Bandwidth Capping

I would like to begin by saying that I think I deserve props for avoiding the whole Charlie Sheen media feeding frenzy last week. If ever a topic cried out for snark, it’s that. And if you don’t think I could connect it to communications in some way, you might be hitting the pipe too hard lately. The sheer content angle alone: “OK, what do you think: Should I call the police or should I call TMZ?" Classic. CLASSIC.

But to the matter at hand: video traffic, and the inevitability of bandwidth-capping. As we all know, a small number of subscribers consume disproportionate amounts of capacity, both for fixed and wireless networks. It is because of this that AT&T argues that less than two percent of its customers will be affected by its new 150 Gigabyte-per-month data cap for DSL and 250 Gigabyte cap for U-verse customers, which begins May 2. Overages will run $10 for every additional 50 Gigabytes per month, by the way, so think before you stream.

The telco said that the average DSL account uses only about 18 Gigabytes per month, and that the percentage of users affected will be very small. That’s in line with worldwide consumption patterns aka the bandwidth-hog phenomenon. The top 1 percent of broadband connections are responsible for more than 20 percent of total Internet traffic. The top 10 percent of connections are responsible for over 60 percent of broadband Internet traffic worldwide, according to Cisco’s latest Visual Networking Index Usage report. Right now, the average broadband connection generates 14.1 GB of Internet traffic per month, up by 31 percent from the 11.4 GB per month average from last year. And so, says AT&T, this shouldn’t be a big deal.

And all of that may very well be true, but really: Who cares? This move is about the coming impact of video on the network, and consumer thirst for it.

The move puts AT&T in a good place to handle the video onslaught that researchers agree is coming in the next four or five years. It's a well-proven truism that the better the network, the better the video experience is, and in turn, the more video users will consume. As subscribers continue to migrate away from DSL and onto cable and FTTx networks for broadband (and as those network get better), video consumption is likely to rise significantly, changing the entire profile of an "average" user's bandwidth consumption.

Right now, over one-third of the top 50 sites by traffic volume are video sites; video sites appeared more frequently than any other type of site in the top 50 (again, thank you, Cisco Visual Networking Index). Online video has surpassed peer-to-peer usage as the largest generator of global broadband traffic. P2P file sharing is now 25 percent of global broadband traffic, down from 38 percent last year, a decrease of 34 percent. Into the breach? Video, and lots of it. The subset of video that includes streaming video, Flash and Internet TV represents 26 percent of traffic worldwide. And that’s nothing compared to what’s coming.

Yet more from Cisco (and I promise, I’m not on the payroll): Total video IP traffic (TV, video on demand, Internet and P2P) will continue to exceed 91 percent of global consumer usage by 2014. Internet video alone will account for 57 percent of all consumer Internet traffic in 2014.

Internet video represents more than one-third of all consumer Internet traffic and will approach 40 percent of consumer Internet traffic by the end of 2010, not including the amount of video exchanged through P2P file sharing.

3-D and HD video traffic will increase by 23 times by 2014. By 2014, 3D and HD Internet video will comprise 46 percent of consumer Internet video traffic.

That’s what we like to call a sea change. And in an era of bandwidth caps, that spike will result in some very different packages – more transactional packages – and some very different customer-oriented personalization tactics. It represents a whole different way of doing business, if I might be so grand.

In the United States, such metered billing remains a rarity, and it's unclear how consumers will react. AT&T has already implemented tiered billing for its 3G service, and Verizon has reserved the right to bandwidth cap for any egregiously overactive iPhone users; Comcast will follow AT&T’s lead for wired broadband starting this fall. Industry watchers agree that alerts as users approach their limits providers will absolutely need to implement an alert system to avoid bill shock and consumer churn.

But despite all that, when we look at these massive consumption changes: Do ISPs like AT&T and Comcast really have a choice? Bandwidth caps are a first step. Let the innovative business modeling begin.